401K question - unemployed - already have multiple judgements....

[JackFrostMI]

I am approaching 2-years of unemployment. Unemployment money has run out & I have -0- income. I have $20K in a 401K account from my previous employer that can be rolled over or withdrawn without claiming a hardship due to the permanent layoff 2 years ago.

I quit paying CC's 1+ yrs ago & have been sued by most, if not all of them. I have multiple judgements against me - but I have no income to garnish so all I'm getting are the daily phone calls from the CA's (which go to v-mail, I never talk to any of them).

Also received a notice that one CC sued us and has a lien against our home - but I am the only one who owed them-not my husband. Lien only comes into effect if we sell home which we don't plan on doing. Thinking this would be dismissed in BK???

I have also received a couple of judgement notices that *MY* state of MI tax refund will be taken when I file.

My husband makes just enough income to pay house+utilities OR his bills, not both. We have 2-joint loans & 1-CC that he put me on when acct. opened 10+ yrs ago (we never use CC-he's just working paying it off $7K). I have exhausted all of my emergency fund ($15K) and my unemployment has been going 100% to house payment/utilites/food/clothing for kids (14&18) while husband pays on his bills that I use to take care of when I was working.

My income went from +$75K to $300/week in a matter of 2-days notice that I was being permanently laid off.

I plan on filing for BK on +$30K - husband is NOT filing. In the near future (4yrs) he will be taking over his family's business as the new owner & will need his good credit history to run it.

At this point I still have no prospects for a job - I haven't even been able to find anything part-time. I am in a very depressed area of Michigan. If I was able to find a job I am sure with the multiple judgements against me that most of my wages would be garnished & I wouldn't even clear enough to pay for gas to get back & forth to the job. I did meet with a BK lawyer last year who said that basically I was judgement proof because I didn't have any income. Advised me NOT to file at that time because I also lost my health insurance & if anything were to happen and I had medical bills while unemployed they could be part of a BK if necessary. He basically told me I should wait until I could find a "good" paying job before I file (then file right away).

MY QUESTIONS:

401K question?? - Once I file BK AND I am working again I will be able to re-build towards my retirement. Right now I need to still be able to keep paying the mortgage, etc. like I have been and wondered if I close my 401K account (YES I know what the penalty & taxes are) and DON'T file BK for at least 6-months will I be OK when it comes time to file or will it count against me?? Or will I have to wait longer than 6-months for the "look back period" if I take out the 401K (I know it will count as income as soon as I withdraw it).

Can I use the 401K money to payoff some of the joint debt I have with my husband (2-loans) or is that considered preferential??

With the judgement on the state tax refund - should I file "Married-Filing Seperately" so that they don't get any of my husbands state refund? Not sure how that works - but I do need to do our taxes soon. I only had unemployment so I didn't pay in that much.

Can any of the CA's with all the judgements I have get at any of my 401K money if I don't put it in the bank when I withdraw it? I am not on my husbands checking account & I don't use the only one I still have open.

I know other's have posted here that they've used their 401K to pay on CC's & then still ended up filing - I just want to use my 401K to "live" on until I can file BK so that I can get a job without worrying about every cent being garnished. Does that make sense??

Any advice is GREATLY appreciated! I haven't been able to find an answer to our situation anywhere & the lawyer wants to cash up front if I want to come in & talk. I don't have a spare dime right now. THANKS!!

[DIY]

It sounds like the only reason you need to file is to prevent a future garnishment. So, plan this bankruptcy on your terms and don't rush into it until you are ready. You can pay off debts, but not within 90 days of filing, however do you really want to pay off debts that may be discharged in bankruptcy? How close are you to the median income and the means test? Any 401K withdrawals will be counted as income. Your 401k money is no longer in a retirement fund if you withdraw the funds, which means it is fair game to creditors who know where the money is.

[chicagoannie]

Hi - a couple things came to mind:

Look further for a few lawyers who will do free consults. You can always go back to the guy who wants money up front after you've talked to others.

Who is going after your state refund? Is it related to student loans? If so how much are they?

The gurus will chime in, but regarding your $20K IRA, I think (not positive) that 20% is automatically gone for taxes. So how long will $16K tide you over? What if you don't have a job by the time that money is gone? You'll be in the same position as today but with zero to fall back on. Don't be thinking about paying off any joint debts with that money if your goal is to use it to "live on." It will go quick enough.

Is your mortgage underwater? Do you have significant equity in your home? Also consider how large the joint debt is.

I know you stated hubby gets the family business in a few years but unfortunately things can change. Not knowing his income I don't know if you guys would be a 13 or a 7....but 4 years from now would be over 3 years after the discharge of a no-asset Ch 7 (again, don't know if this would be your situation) and that is time to re-build some credit if you did a joint Ch 7.

Just a few thoughts!

[DesdemonaB]

I am approaching 2-years of unemployment. Unemployment money has run out & I have -0- income. I have $20K in a 401K account from my previous employer that can be rolled over or withdrawn without claiming a hardship due to the permanent layoff 2 years ago.

I quit paying CC's 1+ yrs ago & have been sued by most, if not all of them. I have multiple judgements against me - but I have no income to garnish so all I'm getting are the daily phone calls from the CA's (which go to v-mail, I never talk to any of them).

Also received a notice that one CC sued us and has a lien against our home - but I am the only one who owed them-not my husband. Lien only comes into effect if we sell home which we don't plan on doing. Thinking this would be dismissed in BK???

All depends if you are an asset case or not, a lien ԁοеѕ NOT prevent one frοm selling tһеіr home, аƖƖ іt means іѕ tһаt іf tһеrе іѕ аחу profit frοm tһе sale, аחу secured liens аrе satisfied first, tһеח іf tһеrе іѕ аחу $$ left, unsecured liens аrе paid.

I have also received a couple of judgement notices that *MY* state of MI tax refund will be taken when I file.

My husband makes just enough income to pay house+utilities OR his bills, not both. We have 2-joint loans & 1-CC that he put me on when acct. opened 10+ yrs ago (we never use CC-he's just working paying it off $7K). I have exhausted all of my emergency fund ($15K) and my unemployment has been going 100% to house payment/utilites/food/clothing for kids (14&18) while husband pays on his bills that I use to take care of when I was working.

My income went from +$75K to $300/week in a matter of 2-days notice that I was being permanently laid off.

I plan on filing for BK on +$30K - husband is NOT filing. In the near future (4yrs) he will be taking over his family's business as the new owner & will need his good credit history to run it.

At this point I still have no prospects for a job - I haven't even been able to find anything part-time. I am in a very depressed area of Michigan. If I was able to find a job I am sure with the multiple judgements against me that most of my wages would be garnished & I wouldn't even clear enough to pay for gas to get back & forth to the job. I did meet with a BK lawyer last year who said that basically I was judgement proof because I didn't have any income. Advised me NOT to file at that time because I also lost my health insurance & if anything were to happen and I had medical bills while unemployed they could be part of a BK if necessary. He basically told me I should wait until I could find a "good" paying job before I file (then file right away).

MY QUESTIONS:

401K question?? - Once I file BK AND I am working again I will be able to re-build towards my retirement. Right now I need to still be able to keep paying the mortgage, etc. like I have been and wondered if I close my 401K account (YES I know what the penalty & taxes are) and DON'T file BK for at least 6-months will I be OK when it comes time to file or will it count against me?? Or will I have to wait longer than 6-months for the "look back period" if I take out the 401K (I know it will count as income as soon as I withdraw it).

If you make withdrawals from a 401k with bankruptcy imminent, or during the bankruptcy process, you could be inadvertently turning a protected asset into an unprotected asset --- subject to seizure by alert creditors.

Can I use the 401K money to payoff some of the joint debt I have with my husband (2-loans) or is that considered preferential??

A total of $600 or more in money or property which is paid to a creditor that is a relative or insider (certain business associates) within a year prior to filing is a preference. The Trustee may recover preferences and divide the money between all creditors.

With the judgement on the state tax refund - should I file "Married-Filing Seperately" so that they don't get any of my husbands state refund? Not sure how that works - but I do need to do our taxes soon. I only had unemployment so I didn't pay in that much.

Here is the link regarding State of Michigan Tax Garnishments: http://www.michigan.gov/taxes/0,1607...6357--,00.html

Can any of the CA's with all the judgements I have get at any of my 401K money if I don't put it in the bank when I withdraw it? I am not on my husbands checking account & I don't use the only one I still have open.

The assets in the 401(k) are not subject to garnishment and are not subject to the claims of creditors. However, when the funds are paid out, they are subject to the claims of creditors.

I know other's have posted here that they've used their 401K to pay on CC's & then still ended up filing - I just want to use my 401K to "live" on until I can file BK so that I can get a job without worrying about every cent being garnished. Does that make sense??

I understand the need to help pay bills – my girlfriend was in the same situation, she went from 69K a year to babysitting (cash) for one of her friends who had kids and was complaining about daycare costs. She then offered to run their errands and other little things around the house. That friend told another friend and the next thing she knew 3 ½ months later she was adding 350 to 500 a month to the household bills. Think outside the box, I live in Michigan too, I had to sit back and watch my ex husband go 27 months – 116 weeks of unemployment – I have zero, nada, nothing for child support – he’s mowing lawns and shoving snow, installing & modifying wireless networks in the friends houses whatever it takes – some weeks he gets 50 bucks, some weeks 300 extra dollars.

Any advice is GREATLY appreciated! I haven't been able to find an answer to our situation anywhere & the lawyer wants to cash up front if I want to come in & talk. I don't have a spare dime right now. THANKS!!

If you can get to the Oakland County Law Library (Pontiac): check this link out - Common Gound http://www.oakgov.com/lawlib/news/commonground.html

I use the Common Ground on issues regarding my divorce, you are allowed 3 sessions from Sept to Sept free, I spend 2 hours with a lawyer regarding child support issues.


Oh the power of Google

[JackFrostMI]

If you make withdrawals from a 401k with bankruptcy imminent, or during the bankruptcy process, you could be inadvertently turning a protected asset into an unprotected asset --- subject to seizure by alert creditors.

***If I don't put the money into a bank account how would any creditors even know I took it out of my 401K account? Is there a way they can find out that I closed out the 401K account & then somehow come after me??

The assets in the 401(k) are not subject to garnishment and are not subject to the claims of creditors. However, when the funds are paid out, they are subject to the claims of creditors.

Again - how are the funds once I get them "subject to the claims of the creditors" unless I put the money into a bank account that they can garnish??

My husband is already working 3-jobs just to pay his credit/loan bills - I would only be using the 401K funds to keep the roof over our heads (we are not underwater in anyway - just 2-years behind on the taxes [-$5K}which 401K would also pay) and for food, clothing, etc. for the kids & us. I am going to check out the State of MI site regarding the garnishment against my refund & also the common ground issue to see what other options might be available to me. I am already trying to pick up extra cash here & there by babysitting & sewing. It's not much but it has allowed us to have "some" heating oil for this winter. We already keep the thermostat at 48/deg all winter - but we've been doing it for 2-years now - just bundle up even more to stay warm. It's better than not having any heat. We've gotten rid of every single "extra" (phones/cable, etc.) & we are still squeeking by. We will also be looking into whether or not a joint Chapter 7 or 13 is the way to go.

Not in a million years did I ever think I'd be in this situation but I'm not going to keep beating myself up over it. I had the emergency fund ($15K that I used for 8-months to keep paying the CC's until it was gone...thought I'd be back to work before it was gone)- I was never-EVER late on a payment for anything until my savings ran out - then within being 30-days late my credit cards were cancelled by the companies & they jacked up the interest rates. It's unreal how high the balances got & none of them would work with me. I got tired of talking to them & stopped answering the phone calls.

[discouraged]

Wow - do I feel for you. I am in somewhat the same spot. Laid off October 2009, but found 2 temporary jobs one part time for 6 months and one full time for 3 1/2 months so unemployment has not run out.

I made the mistake of taking out my 401K adter my savings were gone. I so wish I had that money in retirement now, but I know what you are saying. I, stupidly, used a lot of mine to keep paying the credit cards. Idiotic. But, over and done with.

Who would ever have thought the lack of jobs would last so long? I sure didn't. You'll have to do what you feel is best for your family and your situation. Good luck to you! And - if you decide to take it out, I'd cash that check immediately and keep the cash hidden at home. You will have to disclose it, if there is any left, when/if you file bk but do understand the need to do what you have to to survive.

[JackFrostMI]

Wow - do I feel for you. I am in somewhat the same spot. Laid off October 2009, but found 2 temporary jobs one part time for 6 months and one full time for 3 1/2 months so unemployment has not run out.

I made the mistake of taking out my 401K adter my savings were gone. I so wish I had that money in retirement now, but I know what you are saying. I, stupidly, used a lot of mine to keep paying the credit cards. Idiotic. But, over and done with.

Who would ever have thought the lack of jobs would last so long? I sure didn't. You'll have to do what you feel is best for your family and your situation. Good luck to you! And - if you decide to take it out, I'd cash that check immediately and keep the cash hidden at home. You will have to disclose it, if there is any left, when/if you file bk but do understand the need to do what you have to to survive.

Is there a different lookback for 401K withdrawls?? I thought it was one year? I do know that if I have any "cash" at the time of filing that I need to disclose that - but I wouldn't file until I ran out of money (that's the whole point of withdrawing it now - to live on).

I'll be working the rest of my life to re-save the money (without any DEBT - EVER AGAIN!!!!). Right now my 401K is more of any emergency-living fund that retirement which is decades away.

[DesdemonaB]

JackFrostMI
It was not my intention to sound as those you are not doing enough, and I am sorry if it came across that way. I did not mean to offend, I am sorry.

If you make withdrawals from a 401k with bankruptcy imminent, or during the bankruptcy process, you could be inadvertently turning a protected asset into an unprotected asset --- subject to seizure by alert creditors.

***If I don't put the money into a bank account how would any creditors even know I took it out of my 401K account? Is there a way they can find out that I closed out the 401K account & then somehow come after me??

This comment was more regarding the trustee and the 341 meeting – you have to list cash on hand on date of filing – that means if you cash out and manage to still have any on hand the day you file it become an asset of the estate.

If you do cash out – you will have to keep detail records and receipts to show that you used this for living expenses, mortgage, food, utilities, medical etc. Just to prove that you didn’t fly off to Paris for your spring break.

All banks and credit unions have to report all transactions over 10K – some banks do this for transactions as low as 5K – so there is your paper trail. I am not sure how it works as I never had the privilege of cash or depositing a check over a couple grand.

Besides – with an account frozen due to garnishment will they even allow you to cash the check? What is your bank’s policy? It’s my understanding is that a bank can freeze an account up to 30 days to allow the debtor to response to the writ. This is for exempt vs. non-exempt funds deposited, the writ is only for non-exempt funds – the freeze would allow the debtor time to move the exempt funds to a “save” account. The bank is required to execute that writ, so if you walk in with a 10K check and the writ is for 2K – wouldn’t they be required to keep 2K to satisfy the writ leaving you with 8K?


The assets in the 401(k) are not subject to garnishment and are not subject to the claims of creditors. However, when the funds are paid out, they are subject to the claims of creditors.

Again - how are the funds once I get them "subject to the claims of the creditors" unless I put the money into a bank account that they can garnish??

One again this is more of trustee issue – cash on hand = asset. I am just trying say to you are taking an exempt asset – and turning it to a non-exempt asset.

My husband is already working 3-jobs just to pay his credit/loan bills - I would only be using the 401K funds to keep the roof over our heads (we are not underwater in anyway - just 2-years behind on the taxes [-$5K}which 401K would also pay) and for food, clothing, etc. for the kids & us. I am going to check out the State of MI site regarding the garnishment against my refund & also the common ground issue to see what other options might be available to me. I am already trying to pick up extra cash here & there by babysitting & sewing. It's not much but it has allowed us to have "some" heating oil for this winter. We already keep the thermostat at 48/deg all winter - but we've been doing it for 2-years now - just bundle up even more to stay warm. It's better than not having any heat. We've gotten rid of every single "extra" (phones/cable, etc.) & we are still squeeking by. We will also be looking into whether or not a joint Chapter 7 or 13 is the way to go.

Not in a million years did I ever think I'd be in this situation but I'm not going to keep beating myself up over it. I had the emergency fund ($15K that I used for 8-months to keep paying the CC's until it was gone...thought I'd be back to work before it was gone)- I was never-EVER late on a payment for anything until my savings ran out - then within being 30-days late my credit cards were cancelled by the companies & they jacked up the interest rates. It's unreal how high the balances got & none of them would work with me. I got tired of talking to them & stopped answering the phone calls.

The Common Ground link I gave you is a free (no income requirements needed, you just need to live in Oakland County) advise given by lawyers doing they pro bon work for their firms. They are shadowed by law students – my day was U of M (go blue) and they will meet with you regarding any legal issue from BK, divorce, judgments, drunk driving you name it. Bring paperwork, the more information you give them the more advice they can give you.

[JackFrostMI]

DesdemonaB - I wasn't offended at all - I sincerely appreciate the advice!!

Again regarding the 401K - do I still need to keep detailed records of the withdrawl money if I don't file for over a year? Guess I don't understand the "look-back" period - I thought it was a year for income.

I'm just even more confused about what I can & can't do. I do NOT want any of the creditors to get the money - but we still need it. I don't need all of it right away but if i take any of it out of my previous employers plan I have to take all of it or roll whatever I don't withdrawl into an IRA & I don't know anything about those. I'd rather just get the money now & hopefully I won't have to file until it's no longer part of the look-back.

[discouraged]

I took mine out January 2009 and filed April 2011. By that time it was a moot point as the assumptionw was that, yes, that was how I paid my bills, but I do not know exactly what the time frame is for the look back. Hopefully someone will jump in and let you know - or contact the organization Desmon recommended.

[DesdemonaB]

DesdemonaB - I wasn't offended at all - I sincerely appreciate the advice!!

Again regarding the 401K - do I still need to keep detailed records of the withdrawl money if I don't file for over a year? Guess I don't understand the "look-back" period - I thought it was a year for income.

I beleive I found it in the statement of financial affairs...

11. Closed Financial Accounts
In Item 11 the debtor must list all financial accounts and instruments held in the name of
the debtor or for the benefit of the debtor which were closed, sold, or otherwise transferred within one year before the commencement of the case. These include checking, savings, or other financial accounts, certificates of deposit, or other instruments, shares and share accounts held in banks, credit unions, pension funds, cooperatives, associations, brokerage houses, and other financial institutions. Other examples include any Individual Retirement Accounts (commonly called “IRAs”), mutual funds, bonds, savings plans, and annuities. Debtors should list the name and address of the institution, the type of account, the last four digits of the account number, the amount of the final balance, and the amount and date of any sale or closing.

If you decide to cash out the 401K - I beleive that becomes income (but I am not an lawyer so please verify this) which would disclosed under section 2 of the statement financial affairs...

2. Income Other than from Employment or Operation of Business
All other income, other than from employment, trade, or profession, or from operation of
the debtor's business, that the debtor received during the two years before the commencement of the case should be disclosed under item 2. This category may include, but is not limited to, income from tax refunds, Social Security and other public benefit payments, alimony, child support, interest, dividends, pensions, annuities, capital gains, money judgments from lawsuits, royalties, licenses, rents, leases, and subleases. The amount and source of the income should be listed in the space provided. Spouses that have filed a joint petition should list the income for each spouse separately.

So looks like you would have to keep track of all purchases for 2 years on Income Other than for Employment or Operation of Business.

[/COLOR]I'm just even more confused about what I can & can't do. I do NOT want any of the creditors to get the money - but we still need it. I don't need all of it right away but if i take any of it out of my previous employers plan I have to take all of it or roll whatever I don't withdrawl into an IRA & I don't know anything about those. I'd rather just get the money now & hopefully I won't have to file until it's no longer part of the look-back.

Of course please verify this with a lawyer - but it does look like the trustee will know you closed the 401K - and I will bet they will want to know where it went. Good luck - and helpfully your bank will allow you to cash the check.

[discouraged]

Just had my 341 and yes, he asked about monies for two years, and also if I'd given money to family or sold anything of value for the previous 6 years, which surprised me.

Now, it owuld be a pain, but would certainly help you if you started a spreadsheet when you took the money out and kept track of expenditures of all the money that way - seperate from any other monies.

Understanding that it would be tough to keep that amount of money hidden at home and then do bank drafts or money orders to pay for things, but...

You could also check into starting a separate account at a new bank just for that money. All of this should be checked with a lawyer to make sure you don't lose it to creditors.

Good luck to you. i hope it all works out. Tough decisions, but necessary for you to ask for the survival of your family.